A proposed wind project would require an initial investment of $1.5 million. It is expected to have an annual net benefit of $120,000. The wind project is expected to last for 30 years. Estimate the simple payback period, benefit-cost ratio and the return on Investment. Based on the results, would you go ahead with the project? Assume Discount Rate 8%
SPP = IC/cash flow per period = 1,500,000/120,000 = 12.5years
ROI % = inverse SPP = 100/SPP = 100/12.5 = 8%
How do I estimate Benefit Cost Ratio ? Using PVS/IC
BCR = PVS/IC = B/C
PVS = (AES*Pr – O&M)*UPVF ($)
SPP = IC/AES*Pr
UPVF - uniform present value function based on discount rate
Assume Discount Rate 8%
Assume $0 Operations & Management
Initial cost = 1,500,000 million dollars
30 year duration